Understanding Finality in Blockchain: Definition, Types and Threats

What is finality?

Finality is known as the fact of being final and irreversible. It refers to the blockchain’s irreversibility once the transaction has been confirmed and added to blockchain networking. In a mathematical sense, there is nothing that reflects 100% finality. But it presents 99.9999% certainty in practical terms. Every crypto has different counting blocks to settle the finality. Bitcoin usually requires 6 blocks for confirmation, and Ethereum takes around 30 to settle the finality stage.
Finality is achieved using blockchain networking’s consensus. Each blockchain network employs its consensus algorithm for transaction validation, such as proof of work (PoW) or proof of stake (PoS).

What is finality in blockchain?

We frequently use the blockchain for making transactions. These transactions can have monetary value, votes, transfers of ownership, and others. In this case, when we transfer value, we need assurance that our transaction has been confirmed, and now it’s not getting reversed.
Finality is essential in blockchain, but it takes time. That process requires certain confirmations before the transaction is considered confirmed.

What are the types of finality?

Blockchain finality is divided into different types based on their certainty and chances of irreversibility. Here are four main types of blockchain finalities to know about.

1: Probabilistic Finality

Probabilistic finality refers to chain-based finality. In this finality, transactions can’t be reverted after certain confirmations, as it adds the number to existing blocks. Probabilistic finality is used in proof-of-work (PoW) blockchain networks like Bitcoin and it can also be achieved in proof of stake (PoS) and delegated proof of stake (DPoS) for transaction validation and network security.

2: Absolute Finality

Absolute finality provides detailed information about the confirmation of irreversible transactions. In this process, once the transaction has been made, it is considered permanent and cannot be reversed. Many blockchain networks like Ripple and Stellar use this consensus algorithm to achieve absolute finality, which is called federated consensus.

3: Immediate Finality

It offers instant finality, ensuring that once the transaction is recorded, it is immediately confirmed and irreversible. Here, the transaction got validation from up to 150 validators. Immediate finality provides the highest level of security and certainty in the transaction process.

4: Economic Finality

Economic finality can work for both probabilistic and absolute finality based on consensus protocol as a financial incentive to prevent the transaction from getting reverted due to attackers. The purpose of this finality is to simplify the expensive revert of the system. It offers high security and certainty for transaction settlements.

Proof of Work Chain

The proof of work chain follows the longest and heaviest chain of the consensus. In this process, the two miners broadcast the same blocks and emerge on two different paths. New blocks were added to the chain that look longer than others. Once the longest chain is established and confirmed officially, the transactions of others reject themselves. For example, Bitcoin needs to wait at least six block confirmations before considering the transaction final.

Proof of Stake Networks

Proof of stake claims to have deterministic finality, which means once the transaction reaches the valid block, it works on relevant consensus. PoS-creating blocks don’t require cost or effort. This networking is also denoted by the name of a long-range attack, where attackers have nothing at stake.

Types of Attacks on Finality

1: 51%

The concern behind having the majority of attacks (51%) is that a single entity or group regulates more than half the hash rate. Due to this, attackers try to control the networking and prevent transaction validation. Here is the loop in networking that helps attackers recognize the blockchain transaction, undermining finality.

2: Selfish mining

In this kind of finality attack, miners or groups of miners selectively reveal blocks to the network and take advantage of other miners. Attackers only withhold valid blocks and showcase them when they mine additional blocks, which offers an unfair advantage to them over others.

3: DOS attacks

Here, attackers place high-volume malicious transactions over shards or sharded chains that lead to the refusal of service to the legitimate user. In proof of stake, the consensus of limiting and maximizing decentralization and scalability prevents DOS attacks.

4: Shard Attacks/Cross Shard Attacks

In this scenario, attackers can get control over a significant number of shards or the sharded chain. This process breaches the vulnerabilities, manipulates the transactions, and disrupts the consensus.

5: Timejacking Attacks

Timejacking attacks commonly manipulate the timestamps of blocks, which generally slows down the speed and progress of the blockchain. Here, the attacker scan disrupts the finality process and consensus mechanism of the blockchain.

6: Nothing at stake attacks

In this attack, validators participate in every chain and create forks or conflicting blocks to receive the rewards. Doing so could potentially enable the attackers to send a transaction. By forking the blockchain, they can easily send transactions to themselves instead of another person.

Relevance of Finality in Blockchain

Finality in blockchain provides the required assurance about transactions, validity, and permanence of the concept of blockchain reliability and functionality. Finality ensures security and trust in blockchain transactions. Finality helps in verifying the transaction, tagging its legitimacy, and preventing double expenditure.
It plays a significant role in the context of smart contracts. Finality guarantees that the agreement that is written in smart contracts is unalterable and deterministic.
Finality is also important for decentralized applications to ensure the activity is safe and genuine. Finality ensures that the transactions made over dApps are irreversible and can’t be changed once done.

Finality in the Future

It is necessary to produce a quicker and more dependable future of finality to establish secure encryption and increased interoperability. One such trend that helps to preserve performance and scalability is hybrid consensus. To expedite the certification of finality, certain projects are testing PoS approaches coupled with PoW strategies.
Finality is another crucial component for businesses that accept cryptocurrencies. The waiting time will be reduced, as with finality, which can have a negative effect on businesses as a crypto form of payment.

Bottom Line,
The promise of finality states that once a transaction is complete, it cannot be undone. Different finality types operate on different consensus mechanisms and blockchain protocols. An emerging alternative to proof of work for a quicker conclusion is proof of stake. Numerous blockchain protocols provide probabilistic transaction finality, which states that no transaction is ever automatically or immediately final but instead becomes closer to it over time.

Frequently Asked Questions

What is a provable finality?

The finality will occur more quickly with proveable finality than with probabilistic final chain structures. There are typically two types: chains with immediate proven finality and chains with delayed verifiable finality. Delayed chain finality requires a separate consensus for newly created vs. finalized blocks, whereas instant finality chains do not require any extra finality consideration.

What is the difference between proof of stake and proof of work?

Proof of stake and proof of work are two vital consensus mechanisms used to verify new transactions and their addition to the blockchain. Proof of work is known as the original crypto consensus first used by Bitcoin. The Ethereum blockchain identified certain limitations with Proof of Work and later built an upgraded version of Ethereum employing a faster and more convenient consensus mechanism known as Proof of Stake.

What are DPos?

Delegated Proof of Stake (DPoS) is a consensus mechanism in blockchain that adds a democratic element to the POS deployment validation process. It leads to democratization, where token holders can participate in the operationalization of the network.

What is the importance of finality in blockchain?

In the blockchain, finality assures transactions, their confirmation, and their permanence. Finality adds reliability and trust to blockchain technology, securing the fact that it’s irreversible once the transaction is confirmed. It eliminates the risk of double spending and protects it from malicious attacks. Different types of finality are achieved based on several factors, ranging from probabilistic to absolute, economic, and immediate.

What’s the difference between consensus and finality?

Consensus, in general, is the process or system that verifies a transaction and designates it as authentic. It compiles a list of all legitimate transactions to increase confidence in blockchain cryptocurrency trading.

In the context of blockchain, finality refers to a valid confirmation in which a transaction on the network cannot be altered or reversed. Blockchain networks’ consensus ensures finality, and each network offers a variety of consensus methods, including proof of work (PoS)and proof of stake (PoS).